The dollar moved higher on Friday, aided by an outsized gain in Michigan consumer sentiment data, and ahead of what will almost certainly be a Fed rate hike next week. EUR-USD fell to 1.0532 lows, and will have last Monday's 1.0505 in the crosshairs. USD-JPY meanwhile, topped 115.36 on the improved risk backdrop and higher U.S.
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The dollar rallied broadly after the ECB policy announcement and press conference, with gains pace by EUR-USD losses. The initial releases indicated the ECB would taper its asset purchases to EUR 60 bln from EUR 80 bln, though with Draghi extending the program for 9 months versus the 6 months expected, the markets ended up getting more than it had hopes for.
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OVERVIEW
The European Central Bank kept interest rates on hold as expected.
UK house prices reached a seven-month high in November, rising to 30, according to the RICS house price balance.
Japanese GDP growth was revised down from 2.2% to 1.3% in the third quarter as capital expenditure fell unexpectedly.
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The FX market was fairly quiet in N.Y. on Wednesday, with the dollar largely trading sideways, with the exception of USD-CAD, which fell following the BoC policy announcement, and despite oil price losses. EUR-USD ranged between 1.0726 and 1.0768 through the session, as USD-JPY slipped briefly under 113.50, before rallying over 113.90 on the back of a surge higher on Wall Street.
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OVERVIEW
US factory orders rose 2.7% in October, the largest gain since June 2015 and the fourth straight month of gains.
UK industrial output suffered its biggest monthly drop in more than four years in October after the temporary shutdown of a major oilfield, while factory output also fell unexpectedly.
German industrial production rose just 0.3% in October, less than the market forecast for a 0.8% increase.
Australia's economy contracted unexpectedly in the third quarter, the first time growth fell since 2011.
HIGHLIGHT
The Pound fell from a 2-month high against the US Dollar yesterday following the government agreeing to a Labour party motion to provide details on their plans for Brexit.
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The dollar firmed up some in N.Y. trade on Tuesday, though only by a bit overall. The dollar index was up about 0.4% to 100.60, after briefly dipping under the 100 mark in London. Incoming U.S. data was USD positive, with factory orders hitting a 1.5 year high.
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It appears that 2017 is setting up as a typical late cycle year of inflation.
That's certainly what the long bond seems to expect:
But there are other reasons to think that inflation may be about to hit a recent high.
To begin with, over the last 8 months, prices have increased 1.7%, or roughly a 2.5% annualized rate:
To a large extent, this is about oil and gas prices normalizing as shown on the below graph of gas's YoY% change:
Additionally, CPI for shelter has been increasing at over 3% a year:
Since house prices tend to follow sales, and house sales have made new highs in the last few months, that suggests that house price inflation might also accelerate:
As I wrote several weeks ago, we may be coming in for a good spate of employment numbers, including a decline in the unemployment rate, and this will add to some wage pressure:
So there is good reason to believe that the inflation rate is going to increase significantly over 2% next year.
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OVERVIEW
Last month the U.S. service sector saw activity growth increase at its fastest pace in over a year with the PMI jumping to 57.2 from 54.8 in October.
The U.S. trade deficit widened to $42.6 billion in October as exports fell.
Australia's central bank kept interest rates on hold at 1.5% as expected.
South Africa's economy grew just 0.2% in the third quarter as manufacturing declined more than expected.
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The dollar struggled through the N.Y. session on Monday, posting highs early in the session before fading lower into the close. EUR-USD appeared to benefit from a fairly pronounced short-squeeze, making its way to highs just under 1.0800. USD-JPY meanwhile, failed to breach last week's trend high, and fell to 113.16 lows from highs over 114.77.
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